Marc Nachmann, head of Goldman Sachs Asset Management, highlighted a pivotal shift for private equity in a recent interview. With the era of cheap money ending, private equity must return to its roots, focusing on quality deal-sourcing and operational improvements. The past decade’s reliance on cheap capital and leverage is unsustainable, prompting a need for a more traditional approach.
Nachmann emphasized that the future of private equity will be marked by a return to fundamental principles, reminiscent of its early days when success hinged on enhancing undermanaged divisions or private companies.
As interest rates rise and capital costs increase, private equity players must adapt their strategies to prioritize operational improvements over financial engineering.
While there’s optimism that US interest rates may have peaked, Nachmann predicts a shift in the industry’s modus operandi, anticipating more corporate carve-outs and highlighting the importance of operational excellence for sustained returns. As private equity undergoes this transformation, investors are scrutinizing performance, seeking ventures built on solid operational foundations rather than excessive leverage.
Alumni Advisors have experience in supporting enterprises at such a critical state of their life. External independent advice may be necessary to support companies in their journey of operational performance improvements.